Section VIII: The Future Of The Certificate System:the Management Of The Legal Aid Tariff

I. INTRODUCTION

In the course of my consultations with stakeholder groups, no issue engaged more attention and provoked more criticism than the management of the legal aid tariff, and more specifically, the hourly rates payable under the tariff and, to a lesser extent, the maximum time allocation for particular proceedings and maximum allocations for disbursements and travel time. The anger within the private bar at what they regard as grossly inadequate hourly rates for services provided by members of the private bar under certificates issued by LAO was palpable, and the sense of alienation from the legal aid system ubiquitous. They are not only outspoken in exercising voice, but more to the point are voting with their feet in exiting the system in increasing numbers. On the criteria of exit, voice and loyalty, 1 the certificate system is in tenuous condition. The diminishing commitment by the private bar to the provision of legal aid services poses a fundamental challenge to the sustainability of the legal aid system as we have known it. This issue is one that requires urgent and immediate attention. My terms of reference require me to examine "alternatives to the current tariff process, including methods of ensuring regular reviews to set and adjust the hourly rate paid to lawyers doing legal aid work."

The legal aid tariff has a long history in Ontario that was reviewed at some length in the Holden-Kaufman Task Force Report for LAO in 2000 and is briefly summarized and updated in an appendix to this section of my report (along with a brief review of comparative experience). In brief, the legal aid tariff was created by the Legal Aid Act of 1967 to provide for the payment of fees out of public revenues to lawyers providing legal services under the certificate system with a view to approximating the modest fees that would be charged to a client who could pay, but for whom the payment of a larger fee might involve some hardship (the so-called "client of modest means" test). At that time the certificate (or judicare) system was the only delivery mechanism for legal aid services, prior to the emergence of the clinic system beginning in the late 1970s.

The tariff and the maximum hour allocations and the maximum allocations for various related matters such as disbursements and travel time are set out in a complex regulation promulgated by the Lieutenant Governor in Council. While the tariff and its structure have been revised from time to time, often long periods of time have elapsed without significant revision. For example, hourly rates for legal aid work were not changed between 1987 and 2001, although in the last several years the tariff has been increased by about 16 per cent as a result of several modest changes to it. As of 2006-07 the tariff rates for legal aid services provided under certificates are as follows:

Tier I (0 - 4 years) $ 77.56

Tier II (4 - 10 years) $ 87.26

Tier III (10 years +) $ 96.95

In submissions that I received and in consultations which I held with various stakeholder groups, most of the attention was focused on the inadequacy of these hourly rates, but given the increasing complexity of many kinds of legal proceedings covered by legal aid certificates, a number of concerns were also addressed to the permitted maximum hourly allocations for various legal proceedings under the regulations prescribing the tariffs (a matter which I do not feel equipped to deal with in detail in this review).

LAO's submission to me reported the effect of low tariffs on lawyer participation rates. The number of private lawyers providing legal aid services dropped steadily between 1999 and 2007, notwithstanding an increase in both the tariff and the number of certificates issued during this period.

Between 1999-00 and 2006-07, the total number of lawyers paid by LAO has fallen by 16 per cent (4,932 to 4,119)

Between 1999-00 and 2006-07, the total number of criminal lawyers paid by LAO has fallen by 14 per cent (2,875 to 2,460)

Between 1999-00 and 2006-07, the total number of family lawyers paid by LAO has fallen by 29 per cent (2,964 to 2,109)

LAO data also show that there is a significant "drop off" in the number of lawyers providing legal aid services once they become more experienced. Again, this trend is most notable in the area of family law. For example, in 1999-00 there were 855 "basic level" lawyers (0-4 years' experience) providing family certificates compared to 722 lawyers at the next tier (4-10 years' experience). By 2006-07, there were only 392 lawyers at the 4 to 10 years' experience level providing family certificate services, a decline of 46 per cent.

The seniority profile, when combined with an analysis of the "participation mix" (amount of legal aid work undertaken by different categories of legal aid lawyers), illustrates the risks to sustainability of the certificate program, particularly in family law. LAO data show that LAO relies upon a small number of experienced family lawyers to deliver a significant proportion of its family law services. In 2006-07, only 11 per cent of family lawyers paid by LAO can be said to have a significant legal aid practice by accepting more than 60 certificates for the entire year (an average of more than five certificates per month). By way of contrast, 60 per cent of family lawyers paid by LAO accepted fewer than 12 certificates for the entire year (an average of less than one certificate per month).

On the criminal side, the data show that LAO relies on upon a comparatively larger number of experienced criminal lawyers to deliver a significant proportion of its criminal law services. In 2006-07, 22 per cent of criminal lawyers paid by LAO had a significant legal aid practice (accepted more than 60 certificates for the entire year). Fifty per cent of criminal lawyers paid by LAO accepted fewer than 12 certificates for the entire year.

In both cases, LAO relies on a small proportion of senior lawyers to provide the bulk of legal aid services. In family law, more than half (52 per cent) of lawyers with a significant legal aid practice have more than 10 years' experience. In criminal law, the proportion is even higher, at 61 per cent.

Relying on a small number of significant, experienced providers to supply the bulk of legal aid certificate services, while realizing the benefits of experience and specialization, is also quite risky. It means that even a minor reduction in the number of providers could have important consequences for client services. Those consequences will be serious if LAO loses significant providers in small or rural communities.

Equally important, the data suggest that the legal aid system may not be generating enough new lawyers to replace the more experienced lawyers who now make up the bulk of LAO's service providers. The situation in family law is particularly acute. In 2006-07 there were 58 Tier I and 56 Tier II (i.e. less than 10 years' experience) family lawyers across Ontario who had what could be described as a significant legal aid practice. In other words, there were slightly more than 100 relatively young family lawyers in Ontario who maintained a significant legal aid caseload. This is a small number of practitioners given the size and diversity of Ontario. On the other hand, there are more young and relatively young criminal lawyers with significant legal aid practices. In 2006-07 there were 214 criminal lawyers in this category (105 Tier I and 109 Tier II).

By way of perspective, the current certificate program accounts for about $200 million of LAO's annual expenditures out of a budget of about $325 million-or more than 60 per cent of LAO's total budget. The Legal Aid Services Act of 1998, establishing LAO, mandates it to create and administer "a cost-effective and efficient system providing high quality legal aid services to low-income Ontarians" and requires LAO to have regard to the fact that "the private bar is the foundation for the provision of legal aid services in the areas of criminal law and family law, and the clinics are the foundation for the provision of legal aid services in the area of poverty law."

By way of further perspective on the current tariff, I note that the Holden-Kaufman Task Force in 2000 (with which I was associated as Research Director), in developing various quantitative comparators for the tariff, found that the effective inflation adjusted hourly legal aid tariff had been declining since the tariff restructuring of 1986 and that the effect of the hourly rate had never been restored to pre-1974 levels when inflation is taken into account. The report also noted that for this time period average net professional income for self-employed lawyers in Ontario had been steadily and significantly increasing and that the average incomes of other legal professionals, such as federal and provincially appointed judges and Crown Attorneys, had also seen significant increases. The report also noted from a survey that it commissioned of lawyers in private practice, that the legal aid tariff for many services covered under the certificate system falls substantially - in some cases dramatically - short of the rates that lawyers charge for similar services to clients of modest means. The report also noted that the number of practicing lawyers per 10,000 Ontario residents had increased from 11.1 in 1978 to 14.8 in 1999, while the number of lawyers paid by Legal Aid Ontario under certificates per 10,000 Ontario residents decreased from 6.0 in 1978 to 3.6 in 1999. In the light of these data, the Holden-Kaufman Task Force recommended that the tariff be substantially raised to the range of $105 to $140 per hour depending on the level of experience of the lawyers providing the services in question. The 16 per cent increase in tariffs since 2002 have modestly mitigated these trends but not in any major way reversed them.

LAO in its business case for tariff reform presented to the Attorney General in November 2001 noted that member organizations of the Legal Aid Tariff Working Group, including the Ontario Bar Association, the County and District Law Presidents Association, and the Criminal, Family and Refugee Lawyers Associations, sought an increase of the tariff to $100 to $120 per hour, depending on years of experience. LAO itself at that time requested increases in the range of $85 to $105 per hour, depending on years of experience, from the 1987 base rate of $67 per hour that then prevailed. As noted above, the current tariff ranges from $77.56 per hour to $96.95 per hour depending on years of experience. If the base rate of $67 had been adjusted for inflation, it would have been almost $100 in 2002.

In considering issues relating to the tariff, I accept as a premise the fairness and efficiency rationales for an appropriate tariff set out by the Holden-Kaufman Task Force in its report in 2000:
In thinking about the appropriate level of the hourly rate of the legal aid tariff as opposed to its structure (such as maximum hours per service, the use of block or lump sum tariffs, counsel fees, or per diems), one could adopt a fairness perspective, an efficiency perspective, or both. We are influenced by both perspectives.

From a fairness perspective, one might argue that it is unfair for current and prospective providers of legal aid services to receive an hourly rate for their services that has declined through time while the compensation levels for lawyers in private practice, federally and provincially appointed judges, crown attorneys and other government lawyers, and physicians has increased. Thus, lawyers that are committed to allocating a significant portion of their practices to some of the least advantaged members of society are being asked to make financial sacrifices, on account of their commitment, that most lawyers in private practice and most lawyers or judges in the public sector are not required to make.

From an efficiency perspective, concerns about the level of the tariff must focus not on the fairness of comparisons between lawyers providing legal aid services and other professional groups, but rather the short and long-run incentive effects of under-compensation of lawyers providing legal aid services relative to lawyers pursuing other kinds of practices or non-private practice careers. These incentive effects are likely to affect both lawyers currently providing legal aid services and existing or future lawyers who might prospectively provide such services. With respect to the existing cohort of lawyers providing legal aid services, any deterioration of the legal aid tariff through time may induce an increasing percentage of lawyers to substitute fee-paying clients for legal aid clients. One would predict that young lawyers entering the profession committed to areas of private practice covered by the legal aid plan (e.g., criminal law, family law, and immigration law), with excess capacity and relatively fewer fee-paying clients, in the early years of their practice may be prepared to take on legal aid cases at very low rates, because the opportunity costs of doing so are so low. However, as they become established, develop reputations in their fields, and acquire a significant fee-paying client base that reduces or eliminates any excess capacity, they will increasingly withdraw from the legal aid services segment of the market as their opportunity costs of undertaking legal aid cases rise.

However, older lawyers who have acquired over time highly specialized expertise in particular areas of practice covered by the legal aid plan, such as criminal law and refugee law where private fee-paying clients constitute a smaller percentage of total users of legal services in these areas, may well continue to provide legal aid services despite declining real legal aid rates through time. For them, writing off their investments in specialized expertise and incurring the cost of developing new expertise, along with their commitment to particular areas of law and particular client needs, may induce them to remain participants in the legal aid plan. In some cases, older lawyers with excess capacity and relatively fewer fee-paying clients may be prepared to provide legal aid services at low rates (because of low opportunity costs in so doing), but there may be serious questions about the quality of service that they provide. On the other hand, with respect to established lawyers providing competent legal aid services in areas of practice dominated by legal aid clients, the legal aid plan and the governments which finance it may be primary purchasers of legal services (Legal Aid Ontario is the monopoly purchaser of legal aid services) and hence may be able to depress legal aid rates through time without inducing major substitution or exit effects.

However, in our view, to endorse this approach is ultimately myopic because many students embarking upon programs of formal legal education and then contemplating various choices among areas of specialised legal practice following admission to the profession, may be influenced in their choice of areas of legal specialisation by comparisons of the legal aid rate with prevailing rates of compensation in other areas of private practice or in legal careers in the public sector. That is to say, long-term career choices may be influenced by the opportunity costs of specialising in areas of law dominated by legal aid clients in terms of foregone alternative career options.

Thus, in the long-run, maintaining legal aid tariff levels substantially below prevailing compensation levels in private legal practice and in legal careers in the public sector is likely to reduce both the number and quality of legal practitioners providing legal aid services to the most disadvantaged members of our community.

In discharging my mandate, I have decided to divide the issues into three broad categories: a) who should determine the tariff (including hourly rates and hourly time and related allocations); b) how should these determinations be made; and c) how can the certificate system be put in some state of initial equilibrium so that future adjustments are incremental and tractable?

II. WHO SHOULD DETERMINE THE TARIFF?

In my view, the present locus of responsibility for determining the level and structure of the legal aid tariff is completely unsatisfactory. It diffuses responsibility between LAO and the Ministry of the Attorney General for tariff changes, such that neither institution has developed the requisite technical capacity, on an institutional basis, to analyze trends and factors that bear on the appropriate level and structure of the tariff. The process of tariff changes adheres to no defined time schedule and in the past has been an episodic response to various crises in the system, including job action by legal aid lawyers. The criteria by which proposed changes to the tariff are to be evaluated and justified are murky and unarticulated. Because the tariff is embodied in government regulations, the process of change is cumbersome and protracted and not responsive to the need for flexibility, innovation, and dynamism in the administration of the tariff. In various other jurisdictions, including British Columbia, the U.K., and most of the Australian States, the administration of the tariff is vested in a quasi-independent legal aid agency responsible for administering the legal aid system. I recommend that such responsibility be vested in LAO in Ontario. The present arrangement is an outmoded historical legacy from the period when the legal aid system was administered by the Law Society of Upper Canada and where the government's principal mechanism of control of its financial exposure under the system was its control of the tariff. It would clearly have been irresponsible for the government to have vested in the Law Society of Upper Canada, the governing body of the private bar in Ontario, the legal authority to determine its own tariff rates for legally-aided services. Of course, the crisis of the early 1990s revealed that this was not a sufficient form of control over the government's fiscal exposure for legal aid expenditures, given that the number of certificates that could be issued under the system was open-ended. I fully accept that the dictates of fiscal prudence require that LAO operate under fixed, although periodically adjusted, budgets and that an open-ended, demand-driven system is simply unacceptable (and rightly so) to governments of all political persuasions in Ontario.

However, LAO is not the Law Society of Upper Canada, and a major rationale for transferring governance of the legal aid system from the Law Society of Upper Canada to a quasi-independent public agency, with a multi-stakeholder board comprising a majority of non-lawyer members, was to bring a broader set of public interest perspectives to bear on the administration of the legal aid system in the province. Vesting the administration of the tariff in LAO does not nor should not imply, in my view, an ability on its part, or anybody that it might retain to make determinations on its behalf, to set the tariff at any level it pleases and simply send the bill to the government. This would be entirely inconsistent with the premise that LAO should operate on a fixed, albeit periodically renegotiable, budget. However, the virtues of vesting the tariff management function in LAO are several. First, internalizing tariff management in LAO will enhance the incentives of LAO management to manage its entire budget in the most cost-effective fashion possible, rather than, as at present, finding that 60 per cent of its expenditures are largely outside its control. This will intensify incentives to engage in a heightened level of innovation, both in internal administration and in alternative delivery mechanisms. Second, vesting the tariff management function in LAO will encourage it to be more flexible, dynamic, and innovative in experimenting with different tariff structures, e.g., block fees for some services, differential hourly rates for different classes of services, differential hourly rates for different locations in the province, and tariffs that encourage more holistic provision of legal services that address individual clients' problem clusters. Third, vesting the tariff management function in LAO will enhance public accountability for the expenditure of legal aid resources by removing, or at least reducing, ambiguities as to who is responsible for what. Fourth, it will also encourage more timely responses to imbalances between the demand for and supply of legally aided services, and will clearly focus in one agency the responsibility for developing the technical and related expertise for discharging this function effectively over time.

III. HOW SHOULD THE TARIFF BE MANAGED?

Within its overall budgetary envelope, in my view LAO should be free to change hourly rates or time and related allocations at any time as it feels appropriate, although some form of notice and comment procedure would seem to be appropriate in soliciting reactions from affected stakeholders before proposed changes are put into effect. Obviously, a balance needs to be struck between flexibility and innovation, on the one hand, and stability and predictability, on the other, so that members of the bar and their clients are able to plan their reliance on the system with some reasonable degree of predictability.

However, given that this degree of discretion will be exercised within LAO's overall budgetary envelope, the determination of this budgetary envelope becomes a central issue. Making the critical assumption (which I address more fully below) that the tariff at any given point in time has been set appropriately, then I recommend that LAO and the Ministry of the Attorney General commit to a fundamental review of the tariff levels and structures every three years. As to how this periodic review should be undertaken has been a matter of considerable debate in submissions I received and consultations I held with stakeholders. Some stakeholders favour some form of binding arbitration system. I seriously doubt that such a system, at least in unqualified form, would be acceptable to the government given that it would involve financial exposure for the government, in terms of adjustments to LAO's budget that would be beyond its control. I accept that at the end of the day LAO's overall budget should be set by our elected political representatives. Moreover, in order to maintain balance between the certificate side of the system and legally aided services provided under different delivery mechanisms, the arbitrator would have to also arbitrate salary levels for clinic lawyers and staff duty counsel. Alternatively, separate arbitrators would need to be appointed for these purposes. However, at this point, LAO would have largely handed over the management of the legal aid system - which, after all, comprises principally the human resources that it manages - to one or a series of arbitrators who, by assumption, are not as well-versed in all the moving parts of the legal aid system and how they interact with each other as LAO is itself (or should be if it is discharging its mandate effectively).

Variations on the arbitration proposal would entail some form of mandatory arbitration, but without the LAO or the government being bound by its determinations. I favour a variant on this latter proposal whereby at triennial intervals LAO and the Ministry of the Attorney General would agree on a Fact Finder who would undertake the kind of quantitative analyses undertaken by the Holden-Kaufman Task Force with an agreed set of comparators.

Choice of appropriate comparators is an important issue. A baseline would be intervening rates of inflation. However, comparators should also include intervening trends in participation rates by lawyers of different experience levels in the provision of different classes of services and different regions of the province, as well as a survey of trends in rates charged by lawyers to cash-paying clients of modest means for similar services. I would also focus on one comparator that to me is crucial (and has hitherto received insufficient attention): trends in the take-up (or acknowledgement) rate of certificates issued and trends in the elapsed time between issuance and acknowledgement, by class of service and location, which would provide critical information on any disequilibrium between demand for legally-aided services and their supply (and especially the elasticity of supply of legally-aided services, i.e., responsiveness to increases in the tariff). This information is a crucial input into a rational review process. Other comparators are at best indirect proxies for this crucial datum. The ultimate issue of interest and relevance is: is the market for legal aid services clearing, or not?

The time period between "application and acknowledgement" is important for at least two reasons. First, legal proceedings tend to be time sensitive, particularly in their early stages. It is generally important to have legal counsel as soon as possible to ensure that time limits are respected, that documents are filed in a timely manner, and to protect against default proceedings, etc. Thus, as a general rule, it is preferable to have legal aid certificates acknowledged quickly in order to best protect a client's legal rights.

Second, these measures are good indicators of whether it is easy or difficult for legal aid clients to find a lawyer willing to accept their legal aid certificate. Simply put, "application and acknowledgement" data can indicate whether or not the legal aid system is capable of providing an adequate supply of lawyers to meet client needs. On the one hand, a short time period between applications and acknowledgements suggests the legal aid system maintains a sufficient pool of lawyers to meet client needs. Conversely, a long time period between applications and acknowledgements suggests that clients have considerable difficulty finding lawyers, i.e., face substantial search costs, and that the legal aid system is not providing enough lawyers to meet client needs.

The key findings from data provided to me by LAO are as follows:

79% of applications for criminal certificates are accepted; 21% are refused.

Of the accepted applications, 67.8% of criminal certificates are acknowledged within 14 days and 81.8% are acknowledged within 30 days.

3.7% of criminal certificates are not acknowledged at all.

These data suggest that approximately two-thirds of criminal certificates are acknowledged in a timely manner (less than 14 days).

69.2% of applications for family certificates are accepted; 30.8% are refused.

Of the accepted applications, only 49.7% of family certificates are acknowledged within 14 days and 68.1% are acknowledged within 30 days.

7.9% of family certificates are not acknowledged at all.

The data demonstrate that family clients have considerable difficulty finding lawyers willing to accept certificates. Fewer than 50 per cent of family certificates are acknowledged in a timely manner (less than 14 days). Almost 8 per cent of all family certificates are not acknowledged at all.

These data, coupled with the very high refusal rate for family applications (30.8 per cent), suggest a significant accessibility problem for family legal aid.

It is also important to note that the data likely underestimate the time period between applications and acknowledgements and refusal rates for family law certificates. This is because local practise in some LAO Area Offices across Ontario is not to complete an application, or issue a certificate, if the office believes that there are no lawyers willing to accept certificates in that area.

It is also crucial to note that we do not have time trends for these data, which are crucial for making judgments about longer-run tendencies in establishing and maintaining a reasonable equilibrium between demand for and supply of legal aid services and adjustments that might accordingly be required to the levels and structure of the tariff. LAO must begin regularly collecting and reporting these data in a systematic, consistent and reliable form.

I emphasize that in order to render the focus of the review tractable these trends would only require analysis since the last triennial adjustment. I cannot emphasize too strongly that mandating or permitting the periodic review process and affected stakeholders to relitigate forever the distant past and long-run historical trends that precede the triennial review period will destabilize the review process and render it dysfunctional.

In order to avoid the risk of specially privileging legal aid services provided under certificates relative to legal aid services provided through other delivery mechanisms in a mixed delivery system, which under other recommendations in this review is likely to become more mixed through time, it is important that the Fact Finder also examine trends in salary levels for clinic lawyers and staff counsel and recruitment and retention problems being encountered in this context, otherwise increases in the tariff may crowd out expenditures on other delivery mechanisms in the system. Appropriate comparators for staff lawyers also need to be agreed to by LAO and the Ministry of the Attorney General in the terms of reference to the Fact Finder - trends in Crown Attorney's salaries over the previous three years (smoothing for spikes) is one comparator, but also more crucially trends in recruitment and retention.

I should note here parenthetically concerns over the impact of rising tuition levels at Ontario law schools and concomitant debt loads borne by students on the feasibility of their pursuing careers in poverty law. I urge all Ontario law schools to re-examine their back-end debt-relief programs to ensure that they are sufficiently generous to render this option feasible. LAO should press the law schools on this issue.

Once the Fact Finder's review is completed, it should be published and should form the basis of proposals by LAO to the Ministry of the Attorney General for adjustments to its budget for the next three year rolling budget cycle. The LAO's triennial budget proposals and justifications, following the Fact Finder's review, should also be made public so that there is full transparency and accountability for LAO's requests and the government's response to these requests. However, I accept that at the end of the day the Attorney General and his or her Cabinet colleagues will and should retain the prerogative of determining LAO's overall budgetary envelope and, hence, the kind of resources it will have the capacity to allocate to various of its activities. This is as it should be in a representative democracy. At least this decision will be evidence-based and transparently made against the backdrop of the Fact Finder's findings.

IV. ACHIEVING AN INITIAL EQUILIBRIUM

The foregoing proposals critically assume, as I noted above, that the certificate system is in some form of appropriate equilibrium at a given point in time and the only issue is how to maintain that equilibrium through time through periodic adjustments to it. However, this assumption is almost certainly unwarranted at the present time in Ontario, so that before the process of tariff management that I envisage can be effectively implemented, the system needs to be put into some state of appropriate equilibrium. It is demonstrably the case that current rates fall significantly below any level that could be justified by most comparators, including a comparator as basic as maintaining the level of the tariff constant over time in the light of inflation. As I noted above, if the 1987 base rate of $67 had been adjusted for inflation it would have been almost $100 per hour in 2002 (and approximately $110 in constant 2007 dollars). Hence, a base rate significantly lower than this range (perhaps with only two tiers of experience: one to five years, and six years and above, so as to encourage lawyers with mid-levels of experience to remain participants in the system) seriously risks further attenuating the already tenuous and diminishing commitment of the private bar to the legal aid system and will exacerbate the unfairnesses and inefficiencies at present in the existing tariff structure. Proposing yet further studies of these issues will be regarded as a serious provocation by the legal aid bar and as yet one more attempt to defer its resolution (if at all) to some future indeterminate time.

A starting point reflecting these orders of magnitude will be a bitter pill for the legal aid bar to swallow given that it falls far below the rates recommended by the Holden-Kaufman Task Force of $105 to $140 in 2000 (or $120 to $160 in constant 2007 dollars) - which I have reluctantly concluded are not fiscally or politically feasible (even if justifiable in a first-best world) - but would nevertheless reflect a very substantial increase to current rates. Moreover, for reasons I note herein, agreement on such a rate must foreclose the possibility of re-litigating or re-debating forever past trends in the future. Periodic adjustments would in future focus only on trends (not starting points) in the preceding three years, not the preceding decade, two decades or three decades. Establishing a periodic review process without establishing acceptable starting points or baselines would be akin to pushing on a piece of string, and may indeed exacerbate existing disaffection with the system by institutionalizing three-yearly open-ended debates of the kind that have occurred over the past three decades.

I am also acutely aware that closing the gap between the existing tariff and any defensible baseline tariff, as well as making related adjustments to salaries of staff counsel and clinic lawyers, whether implemented immediately or phased in over some relatively short timeframe (e.g., three years), will entail significant additional government expenditures on the legal aid system, particularly in the context of worrying signs of a softening economy. Moreover, these expenditures cannot be viewed in isolation from other features of the system which I have commented on in this review. In particular, relaxing the financial eligibility criteria for certificates will presumably significantly increase demands for certificates, which in turn would require compensation at significantly higher levels than at present if tariff increases are implemented. But relaxing financial eligibility criteria without addressing whether there is likely to be an effective supply-side response to this increase in demand is a recipe for a future crisis, where certificates are issued but lawyers are not able and willing to accept them. Moreover, addressing more proactively issues of quality in the provision of legal aid services is in part dependent on levels of compensation. For example, to aggressively implement some form of peer review process, even if targeted at only legal service providers where patterns of complaints or billing irregularities suggest a case for further scrutiny, is likely to reduce further the already tenuous levels of commitment to the certificate system by the private bar, so that without adequate compensation for legal services provided under certificates, the commitment to the provision of high quality services enshrined in the Legal Aid Services Act is also seriously compromised. The legal aid system has many moving parts that interact with each other and these must all be kept in focus when adjusting any one element in the system.

Some of the additional costs entailed in raising eligibility criteria and compensation levels for legal services provided under certificates can no doubt be off-set by some of the service delivery innovations that I have discussed in the previous section of this report, including encouraging (and financing) clinics to take on some limited range of criminal law and family law matters, enhanced duty counsel, information web sites, and lawyer hot-line services, and by LAO's commitment to productivity improvements of 1 per cent a year over the next five years. In addition, a concerted focus on dysfunctions in the broader justice system that generate back-end costs for the legal aid system that often could be more cost-effectively addressed up-front also promises significant long-term cost savings (and indeed become more pressing under these proposals). However, moving to a staff office-driven system instead of the certificate system, on the evidence to date, does not offer significant cost savings and is thus no easy panacea.

Hence, all this said, at the end of the day there is no gainsaying the conclusion that a significant infusion of new funds is required to put the legal aid system in Ontario on a healthy and sustainable basis going forward. Again, it is worth recalling, in this context, the findings of the recent World Bank study that the most valuable assets that developed countries possess are intangible assets (80 per cent of all assets) and that these comprise primarily human capital (35 per cent) and the quality of their institutions (60 per cent), most particularly, the quality of institutions pertaining to the rule of law. In the recent past, as a province, we have made significant progress in enhancing investments in the human capital side of the intangible asset equation, and it is perhaps time now to recognize that enhanced investments on the institutional side of this equation, especially institutions bearing on the robustness of our commitment to the ideals of access to justice and the rule of law in the province, require equal attention.

SECTION VIII - APPENDIX A
HISTORY OF THE TARIFF SETTING PROCESS IN ONTARIO

The legal aid tariff in Ontario has always been set by the government through regulation. In the early years, the Law Society of Upper Canada proposed changes to the tariff levels, which were then considered by the government. As the legal aid system became more expensive, decisions about the legal aid tariff became increasingly controversial.

When the Legal Aid Plan was established in 1967, the Law Society drafted a proposed tariff, setting the fees "to approximate the modest fees that would be charged to a client who could pay but for whom the payment of a larger fee might involve some hardship" (the so-called "client of modest means" test). 2 The fee proposal was accepted by the government and issued as a regulation. The tariff established two separate hourly rates depending on the court in which the case was to be heard and included some block fees, which would cover certain legal matters in their entirety. Twenty-five per cent of fees were deducted, however, as a mandatory charitable contribution by the legal aid bar. This deduction was to reflect, in part, the certainty of payment through the legal aid system.

In 1973, the Law Society recommended an increase to the tariff to reflect changes in the Consumer Price Index. The government agreed to the change. The tariff was increased again in 1979, and three separate hourly rates were created, linked to years of experience in the relevant area of law. Lawyers with less than four years of experience would be paid $48/hour; lawyers with four to ten years would be paid $54/hour; and lawyers with ten or more years would be paid $60/hour. The change was intended to encourage more experienced lawyers to participate in the legal aid program.

Early 1983 saw another increase, although at an amount lower than that recommended by the Law Society. In 1983, the legislative All Party Standing Committee on Procedural Affairs recommended an increase to the tariff and an elimination of the 25 per cent deduction of fees, arguing that the tariff no longer provided adequate compensation. The government increased the tariff by 5 per cent and appointed a Fact Finder to examine the tariff issue. The Fact Finder recommended a substantial increase in the tariff, concluding that it had failed to keep pace with inflation, the increased costs of running a law practice, and increased incomes in the law and other professional sectors. The Fact Finder also recommended a regular review of the tariff and an impartial arbiter to resolve disputes. Over the next several years, the government eliminated the separate hourly rates for different courts, reduced the deduction of fees to 5 per cent and increased the hourly rates to $67, $75 and $84 for the three experience tiers.

In 1992, in response to the significant expansion of eligibility criteria and resulting costs for legal aid programs, the government began to introduce cost-containment measures, including a soft cap on billings, progressing from 3 per cent withheld for billings between $175,000 and $225,000, to 60 per cent withheld for billings over $350,000. In 1994, the government negotiated a fixed level of provincial funding for legal aid as part of a Memorandum of Understanding with the Law Society of Upper Canada. This resulted in drastic reductions to the scope of matters covered by legal aid, and also resulted in extensive tariff cuts, with the goal being a 22 per cent reduction in the average case cost.

The hourly rate of the tariff was not changed as part of the cuts. Instead, maximum hours for each service were reduced to the level of the average amount billed for that service. A small pool of funds was established for discretionary payments above the maximum. In addition travel disbursements were reduced and the payment of counsel fees for attendance in court was eliminated. Cuts were also made to the scope of coverage for certificates generally. In 1997 maximum hours in some complex family law cases were increased. In 1998 with the Legal Aid Plan in a surplus situation, the government, in negotiations with the Law Society, made some enhancements to the tariff. General increases included the elimination of the 5 per cent deduction, the creation of an administrative fee for each certificate, an appearance fee for duty counsel, and an additional two hours added to the overall maximums in most matters. Additional hours were allowed for a number of specific services and coverage was expanded in limited criminal and immigration cases.

In 1999, Legal Aid Ontario was established. Shortly afterward, in April 2000, the LAO board commissioned an independent analysis of the tariff system. Robert L. Holden and the Honourable Fred Kaufman were asked to examine three matters: the effect of the tariff rate on the quality and accessibility of legal aid services, the tariff structure and alternative billing methods, and modifications to improve tariff administration. 3

The Holden-Kaufman Report, issued in November 2000, concluded that the legal aid tariff at the time was "wholly inadequate", and recommended instead a range of hourly rates from $105 to $140. This range reflected both the average hourly rate charged to clients of modest means, discounted for the absence of bad debt problems, and an updating of the 1973 tariff rate using both inflation and the increase since 1973 in the average net hourly income of Ontario lawyers generally. 4

In 2001, LAO submitted a business case on tariff reform to the government, requesting an increase in the tariff rate to a range of $85 to $105, based on the Holden-Kaufman Report and additional staff research on lawyer workload, overhead and willingness to accept legal aid work. 5

Neither the Holden-Kaufman Report nor the Business Case resulted in a change to the hourly rate. In April 2002, Ontario criminal legal aid lawyers held a day of protest - refusing to do any legal aid work on that day - objecting to the lack of increases to the hourly rate since 1987. Protests of various kinds continued after that day, particularly in the eastern and northern parts of the province. Some legal aid lawyers refused to take legal aid cases at all. Others reduced time spent on legal aid work. The Canadian Bar Association also announced that it would bring test cases before the courts intended to establish constitutional rights to legal aid. In response, the Ontario government announced a 5 per cent increase in legal aid rates. The reaction from legal aid lawyers was largely negative, and protests continued in some communities for several additional months. In November 2002, the government passed the Legal Aid Services Amendment Act, which requires LAO to consider the need to achieve an effective balance among the different methods of providing legal aid, including the increased use of staff lawyers. At the same time, the government committed itself to a further increase of 5 per cent, which took effect in April 2003. Legal Aid Ontario requested another 5 per cent increase in the tariff rates in 2007. The government adopted the increase for the stated purpose of ensuring that "a healthy roster of high-calibre lawyers continues to be available to assist low-income Ontarians."

While the tariff rate has essentially kept pace with the cost of living since the creation of Legal Aid Ontario, the legal aid bar has continued to be frustrated by the loss of tariff value during the years between the 1987 base-rate increase to $67 and the 2002 increase. If the 1987 base rate of $67 had been adjusted for inflation, it would have been roughly $97 in 2002.

SECTION VIII - APPENDIX B
THE COMPARATIVE EXPERIENCE

Canadian jurisdictions use a mix of staff and judicare models in the provision of legal aid services. Nova Scotia, PEI and Saskatchewan use staff models, with the option of private lawyers available only for conflict of interest cases, staffing shortages, or criminal cases in which a choice of counsel is required under interjurisdictional agreements. Ontario, Alberta, British Columbia, and New Brunswick have primarily judicare models. The others (Newfoundland, Quebec, Manitoba, Yukon, Northwest Territories and Nunavut) use a combination of the two. Nearly all jurisdictions have created an organization to administer legal aid, independent of both the government and the law society of the province or territory. There is little consistency in the tariffs across the country, with rates reflecting differences in the cost of living or in government priorities. In the past, tariff rates were often set with a view to what a lawyer could expect to bill a "client of modest means". As the volume and cost of legal services increased, governments began to look for ways to maximize the amount of legal aid service that could be provided within a limited budget. Tariff rates became subject to supply and demand considerations.

The method used to update tariffs varies by province. In most jurisdictions, the legal aid organization consults with the bar, then makes a proposal to the government. The government ultimately decides whether or not to make the changes. Quebec's legislation requires the government to negotiate the tariff periodically (every five years or so) with the Quebec Bar (Barreau du Québec). In British Columbia, New Brunswick, and Saskatchewan, the legal aid organization sets the tariff rates within an overall budget cap.

In British Columbia in 2002, the government cut the legal aid budget by nearly 40 per cent, resulting in the elimination of poverty law services and a significant reduction in family law services. Tariffs were cut at the time by 10 per cent. After a period of adjustment to the reduced budget, the B.C. Legal Services Society was able to increase some tariffs in 2005.

Only one province has a regular tariff review mechanism enshrined in their legislation. The Legal Aid Manitoba Act6 provides that the management council of Legal Aid Manitoba must review the tariff in consultation with an advisory committee every two years. The council then provides a recommendation and explanation to the Minister. While the legislation does not require the government to accept the recommendation, it establishes an expectation that the issue will be considered.

Alberta has recently revised its tariff structure significantly. In Alberta, Legal Aid Alberta recommends tariff changes, which must be approved by Alberta Justice. Recent changes were made to increase predictability in budgets as well as to ensure good outcomes for clients. Among the revisions approved for 2008 are a consolidation of civil law categories, to allow lawyers greater flexibility in their use of hours, and a conversion of 12 criminal law items from hourly fees to block fees. Block fees are also used in British Columbia, Manitoba, New Brunswick, Quebec, Saskatchewan, and the Yukon.
There are competing advantages to block and hourly fee structures. Block fees can provide an incentive for lawyers to budget more carefully and avoid wasting time. They can also provide an incentive to resolve cases more quickly. Hourly fees, on the other hand, can be a rough mechanism of quality assurance, by providing an incentive for lawyers to take extra care to ensure everything appropriate has been done. The challenge for legal aid systems is in balancing incentives to assure high quality at minimum cost. In Ontario, block fees were eliminated in 1996 and replaced with strict caps as part of the cost-cutting measures of the time. These reduced hourly maximums in the tariff provide a similar incentive for lawyers to work efficiently. Currently, the tariff imposes maximum hours for all services except attendance at a preliminary inquiry or trial for most indictable offences and certain ancillary criminal proceedings.

A variation on block fees has recently been introduced in the United Kingdom. England and Wales have long had the most comprehensive and expensive legal aid system in the world, spending $77.67 per capita on legal aid matters, compared with Ontario's expenditure of $27.47. Faced with rising costs, England has sought to change the way it pays for legal aid services. In 2006, Lord Carter of Coles published a review of the way the Legal Services Commission procured lawyers for criminal law legal aid services. Lord Carter recommended the introduction of a number of market-based changes to procurement, with the goal of reducing inefficiencies without reducing the quality of service.

The first change to be implemented was the replacement of England's hourly pay rates with a form of block fees called "graduated fees", which consist of a base fee with increases tied to predetermined proxies for case complexity. The change was intended to reward efficient practitioners and to reduce excessive costs associated with travel. The graduated fee scheme was based on extensive case analysis, which found a relationship between the cost of a case and five factors: offence type, stage of resolution, trial length, pages of prosecution evidence, and number of defendants.

The new fee scheme was intended to pave the way for the second proposed reform to be introduced in 2009. "Best value tendering" will require firms to bid for set numbers of cases within a limited geographical boundary. This proposal is intended to encourage mergers and discourage generalist practitioners from taking criminal cases.

Lawyers in England have strongly protested the "best value tendering" proposal, arguing that it will discourage lawyers from taking more complex cases. Groups representing ethic minorities have brought suit to block the changes, on the grounds that "best value tendering" disproportionately threatens minority-controlled firms, which tend to be smaller, and the communities they serve. While the "best value tendering" proposal has been widely criticized, there has been little objection to the graduated fee structure.